How Brexit insecurity affects the UK Casino Industry
It’s been more than three years since the Brexit saga first came to light and we are still no clearer as to which direction proceedings will go. On the one hand, the UK has finally passed the interim Withdrawal Bill through the House of Commons, which means that Brexit will officially happen on January 31st.
Negotiations will once again resume in the hope that a long-term trade relationship can be agreed upon once the transition period concludes. As such, there are once again insecurities as to what a post-Brexit UK casino industry will eventually look like.
The overarching reason for this is that both the UK and the European Economic Area are heavily interlinked. Whether it’s UK operators stationed in Malta or Swedish software developers based in London – the UK government has gone as far as to issue guidance notes on how British casino firms should prepare for a potential no-deal Brexit.
What is the current state of play with Brexit?
In order to set the scene as to why the UK gambling industry could be heavily impacted by a no-deal Brexit, it is highly relevant to look at the current state of play. In a nutshell, the recently elected Conservative government finally got its Withdrawal Agreement through the House of Commons.
This means that the UK will officially be leaving the European Union on January 31st 2020. When it does, both the UK and the EU’s remaining 27 member states will enter into a transitional period. For the benefit of simplicity, it will be pretty much business as usual – at least for the gambling industry.
However, those operating in the casino space should not get complacent. Why? Well, the UK government has also entered a clause within the Agreement that places a limit on future negotiations. More specifically, if the UK is not able to secure a long-term trade deal with its European partners by December 31st 2020, then it will instantly enter into a no-deal Brexit.
There will be no legislation in place to govern key regulatory matters, meaning that the UK will be treated in the same light as any other nation outside of the block. This is why UK firms operating in the casino industry must prepare for the worst. Failure to do so could be catastrophic.
How will a no-deal Brexit impact the UK casino industry?
While there is no knowing just how the UK casino industry will be impacted by a no-deal Brexit – not least because it is likely that individual member states will form reciprocal agreements with the UK virtually overnight, it is useful that the UK government has released guidance notes on how best to prepare.
We’ve outlined some of the most important potentialities that the guidance notes cover.
Free movement of people
The obvious starting point is that of the free movement of people. For those unaware, membership of the European Single Market forces member states to remove jurisdictional borders, meaning that EU citizens can live, work, and freely move between EU countries with ease. This could be problematic for two key reasons.
Restrictions of human capital
First and foremost, restrictions or hindrances on UK-to-European Union immigration could result in a shortage of key personal. For example, let’s say that a Danish software developer wishes to take on a new role at a UK-based casino site. In doing so, they simply need to catch a flight and enter the UK with that all-important EU passport. This is also the case if a British anti-money laundering officer wishes to relocate to a Malta-based casino.
However, employing the very best talent across the European block might not be as much of a seamless process as it once was, should a no-deal Brexit occur. In fact, even if the UK does agree on a long-term trade deal with the EU, the free movement of people will not be on the table. As such, the requirement of a work permit is all-but a certainty.
Cross-border employment in Gibraltar
The second issue linked to an end of the free movement of people is that of Gibraltar. Although Gibraltar shares its one and only border with Spain, it is a British Overseas Dependency. As such, it will depart the European Union on the same terms as the UK. When you factor in how much of a presence UK gambling companies have in Gibraltar, this could be highly problematic.
Crucially, British citizens that are stationed in Gibraltar typically rent accommodation over the border in Spain. This is mainly due to a much lower cost of living. Employees will then make the swift border crossing both in the morning and on the way home from work.
However, this ‘swift’ process will no longer be swift once the free movement of people comes to an end. Unless gambling employees are able to obtain a special status that permits a speedy crossing, long delays are to be expected.
The obtaining, sharing, and safe-keeping of personal data has been a hot topic in recent years. In fact, the European Union went as far as enacting some of the most draconian data protection laws globally in 2018 under its General Data Protection Regulation (GDPR).
With that being said, if the UK leaves the European Union without a deal, this could leave British casino firms highly vulnerable. Although the British government has noted that it plans to mirror the rules of the GDPR post-Brexit, there is no guarantee that this will be the case until legislation is actually enacted.
Nevertheless, in order to prepare UK gambling firms for the worse, the government suggests that companies need to review current data-related contracts. The government continues to add that should UK firms not act, organizations “may lose access to personal data it needs to operate”.
The UK is a highly attractive marketplace for European operators for two key reasons. Firstly, the UK is home to one of the largest gambling sectors globally. Although regulations are somewhat overly stringent, players benefit from a tax-free system on winnings.
Secondly, operators themselves also benefit from highly favorable tax arrangements by relocating to Gibraltar. As we noted earlier in our article, Gibraltar is a British Overseas Dependency, meaning that it will equally be impacted by a no-deal Brexit. As things stand, European operators not only enjoy much lower taxes by being stationed in Gibraltar, but it also gives them access to the UK market.
However, the UK government has already actioned a post-referendum tax hike on remote gambling operators based in the UK, increasing it to 21% from 15% late last year. With that said, a no-deal Brexit could further motivate the UK to once again hike its gambling-related tax rate. This would be highly catastrophic for UK operators, as it could make their already wafer-thin margins unviable.
While operators could react by passing on tax hikes to its players in the form of higher house-edges and wider spreads, this will likely result in a substantial reduction of customer acquisition.
Copyright laws in the UK could be about to encounter a major sea-change. While the technicalities are somewhat complex, the overarching concept is that most UK copyrighted material is also protected in the EU – and vice-versa.
The good news is that it will be business as usual for most industries after Brexit, as international copyright laws supersede that of UK and EU protections. However, some cross-border services (such as online content services) will no longer apply in a post-Brexit world, so online casinos must pay attention.
For example, let’s say that a UK casino sponsors a number of Premier League footballers, meaning that it can promote the players on its website. At the time of writing, UK operators can use the very same material for customers based in other European member states. However, this might not be the case if a no-deal Brexit comes to fruition.
This could also be the case for real-time streaming services. For example, more and more online betting sites are now streaming live matches via their websites. The content can be watched both in the UK and mainland Europe, not least because copyright laws remain constant.
While this particular concern might not impact all sides of the UK gambling space, increased tariffs or enhanced red-tape on the importation of hardware could be an issue nonetheless. As it currently stands, importing and exporting hardware between EU member states is as seamless as the free movement of people. As the European block has a zero-tariff framework for tax and duties, UK gambling companies can import hardware with ease.
This could include a UK-based online casino that needs to install large-scale servers to facilitate its customer base. Similarly, UK betting shops might need to important hardware to run their FOBT (fixed-odds betting terminals) machines.
Either way, if the UK were to leave without a deal, the importation process could be negatively affected. For example, UK gambling companies might need to pay a tariff when importing goods from within the EU, which again, will further hit their bottom line.
A no-deal Brexit could also impact a UK gambling site’s ability to gain exposure to the European markets. At present, a number of UK casinos will create sister platforms to specifically target European players. In doing so, firms will often create a .EU domain.
However, the UK government notes that UK businesses might not be able to renew a .EU domain after Brexit. This will be the case if the UK gambling site in question is established in the UK, but not the European Economic Area.
This will likely hit smaller gambling firms that do not have the resources to physically establish themselves in mainland Europe with dedicated offices. Once again, it is unlikely to be viable for UK casinos to create a subsidiary company overseas purely for the benefit of retaining a .EU domain.
These concerns have been echoed by EURid – the organization responsible for operating the .EU domain space. The organization notes that UK firms will have two months to meet the required eligibility criteria once the UK leaves the EU. If they don’t, the firm will have its domain withdrawn.
Is it all just scaremongering?
While all of the above points that we have discussed in this article are entirely valid, those supporting the Brexit cause will argue that UK casino firms have nothing to worry about. With respect, they could be right. For example, when the UK does eventually leave the UK once the transition period comes to a halt, the UK will implement its Great Repeal Bill.
In its most basic form, the Bill ensures a smooth exit from the European Union by implementing all current EU regulations into UK law. This ensures a ‘business as usual’ process for most industries. While the UK will have the statutory power to amend or completely remove certain laws as and when it sees fit, the Great Repeal Bill will ensure that UK gambling firms are not left stranded overnight.
It is also important to note that arguably, the chances of a no-deal Brexit are virtually non-existent. While there is no way to predict the future, neither the UK or European Union will want to harm its own interests by walking away empty-handed.
Instead, if it appears that time is running out for negotiations to conclude before the deadline of December 31st 2020, the UK and European Union can implement side-treaties for certain metrics. For example, this could include a brief extension to the free movement of people while the specifics are enacted into legislation.
Moreover, with the Withdrawal Agreement already finalized and ready for action, frontline negotiators – at least from the UK side, argue that much will transition into the eventual long-term treaty. This means that a negotiation period of 11 months is more than feasible. Once again, any specifics that cannot be agreed upon before the deadline date could be extended in the form of a temporary side-treaty.